RBI Cuts CRR by 100 bps to 3% in Phased Manner; ₹2.5 Lakh Crore Liquidity Boost Expected
By Ankur Chandra | Published at: Jun 6, 2025 04:03 PM IST
The Reserve Bank of India (RBI) announced a 100 basis point reduction in the Cash Reserve Ratio (CRR) on June 6, 2025, lowering it from 4% to 3%. The reduction will be implemented in four tranches of 25 basis points each, and the central bank estimates a liquidity injection of ₹2.5 lakh crore into the banking system.
Cash Reserve Ratio (CRR) is the percentage of a bank’s total deposits that must be kept with the Reserve Bank of India (RBI) in cash. It helps the RBI control liquidity and inflation in the economy.
Along with the reduction in CRR, the RBI’s Monetary Policy Committee (MPC) also reduced the repo rate by 50 basis points to 5.50%. This is the third consecutive policy rate cut in the current financial year by the MPC.
Additionally, the RBI revised its monetary policy stance from ‘accommodative’ to ‘neutral’. This shift in MPC’s stance suggests that the RBI is adopting a more balanced approach to managing inflation and supporting growth.
Policy Highlights
| Measure | Details |
|---|---|
| CRR Cut | 100 bps (from 4% to 3%) |
| Implementation | In four tranches of 25 bps |
| Estimated Liquidity Injection | ₹2.5 lakh crore |
| Repo Rate | Reduced by 50 bps to 5.50% |
| Policy Stance | Changed from ‘accommodative’ to ‘neutral’ |
| CPI Inflation Forecast (FY26) | Revised to 3.7% from 4.0% |
| GDP Growth Estimates (H2 FY26) | Q2: 6.7%, Q3: 6.6%, Q4: 6.3% |
RBI’s Liquidity Support Through CRR Adjustment
The phased CRR cut is designed to improve liquidity conditions in the banking system. The cut in CRR is expected to support credit availability across sectors by freeing up additional funds with commercial banks. This is because the commercial banks will now have to hold less deposit amount with the RBI and will have more funds to lend.
Repo Rate Brought Down to 5.50%
MPC’s decision to lower the repo rate by 50 bps brings the benchmark rate to 5.50%, down from 6.00%. This rate serves as the base for most interest rates in the economy. The reduction is expected to help ease borrowing costs for various categories of borrowers.
Inflation Outlook Revised Downward
MPC also announced a downward revision to the Consumer Price Index (CPI) inflation forecast for FY26, to 3.7%, from the earlier estimate of 4.0%. The downward revision is based on easing price pressures in food and fuel categories, which may contribute to a more favourable inflation trajectory.
GDP Growth Projections Retained
The RBI retained its real GDP growth projections for the second half of FY26 as follows:
- Q2FY26: 6.7%
- Q3FY26: 6.6%
- Q4FY26: 6.3%
Impact and Transmission
The measures announced by the MPC are designed to ensure adequate systemic liquidity and credit flow while maintaining inflation control. However, the effectiveness of these actions will depend on the timely and full transmission of policy rate cuts by banks and financial institutions to borrowers.
What’s Ahead?
With the CRR cut and the reduction in the repo rate, liquidity in the banking system is expected to improve in the coming months. This move should make loans more affordable, helping businesses meet their capital needs and supporting consumer spending. However, the shift to a ‘neutral’ stance shows that the RBI is now more cautious and in no rush to cut rates further unless needed.
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